ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

A Study on the Relation between the Requirements for IPO of Earnings and Sales Items and Earnings Management in KOSDAQ IPO Firms

  • Kim, Moon－tae Chosun University
  • Lee, Sun Hwa Honam University
  • Kim Wonsin Jeonnam Institute

Asian Tax Journal Vol. 24 No. 4 (2023), pp. 31-49

Abstract

The purpose of this study is to investigate the possibility of adjusting the reported earnings to meet the IPO requirement of earnings and sales items at the time of IPO of listed companies registered in the KOSDAQ market. This study verified 273 IPO by year－firms and 5,943 samples that were not listed on KOSDAQ from 2013 to the end of June 2020(excluding the financial industry). The earnings management proxy variable is estimated by modified Jones model (Dechow et al. 1995), and it is verified whether there is a significant relationship with earnings management by taking dummy variables such as 1) ROE of 10% or more, 2) net income of 2 billion won or more, 3) sales of 10 billion won or more, and 4) sales growth rate of 20% or more. First, as a result of univariate correlation analysis, IPO had a significant positive (＋) correlation with earnings management, and the requirements for ROE, net income, and sales growth rate were found to have a significant positive (＋) correlation with earnings management. Second, when IPO met the requirement of 10% of ROE, aggressive earnings management was used compared to year－firms. Third, when IPO meets the requirements of more than 2 billion won in net income, a earnings upward management strategy was used to produce relatively good operating performance compared to other year－firms. Fourth, when IPO met the requirement of 20% or more of sales growth, aggressive earnings management compared to other year－firms were derived. This study will contribute to presenting empirical results that the “KOSDAQ Revitalization Plan,” which is currently being discussed with the easing of listing requirements, should at least ensure accounting transparency in terms of market stability and investor protection.

Keywords

  • KOSDAQ
  • IPO
  • IPO Requirement of Earnings and Sales Items
  • Earnings Management

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Asian Tax Journal

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